U.S. Credit Swaps Climb for Second Day; Capital One Issues Bonds

A gauge of U.S. corporate credit
risk climbed for a second day after Cypriot lawmakers rejected a
levy on bank deposits, stoking speculation of renewed tumult in
the euro area.

The Markit CDX North American Investment Grade Index, a
credit-default swaps benchmark that investors use to hedge
against losses or to speculate on creditworthiness, increased
1.4 basis points to a mid-price of 81.8 basis points at 4:36
p.m. in New York, according to prices compiled by Bloomberg. It
had fallen by as much as 0.7 earlier in the day.

In a show of hands today, Cyprus’s legislators voted 36
against to none in favor of the proposal, which is intended to
defray the cost of a rescue package. After the decision, the
European Central Bank reaffirmed its commitment to provide
liquidity “as needed within the existing rules” in a
statement. While Cyprus accounts for less than half a percent of
the 17-nation euro area’s economy, investors are concerned a
shock from the country could aggravate Europe’s debt crisis.

“You still don’t have a deal in Cyprus, and as long as you
don’t have a deal, there’s the question of uncertainty,” Scott MacDonald, head of research at MC Asset Management Holdings LLC
in Stamford, Connecticut, said in a telephone interview.

Housing Starts

The credit-swaps index typically rises as investor
confidence deteriorates and falls as it improves. The contracts
pay the buyer face value if a borrower fails to meet its
obligations, less the value of the defaulted debt. A basis point
equals $1,000 annually on a contract protecting $10 million of
debt.

Builders broke ground on 917,000 homes at an annual rate in
February, up 0.8 percent from a revised 910,000 pace in January
that was higher than initially estimated, the Commerce
Department reported today in Washington. Building permits, a
proxy for future construction, advanced 4.6 percent to 946,000,
the strongest since June 2008. A firming economy may alleviate
concern that companies will struggle to repay debt.

Capital One Financial Corp. (COF), the lender that gets more than
half its revenue from credit cards, sold $850 million of bonds
today in a two-part offering. The company sold $250 million of
three-year, floating-rate notes to yield 45 basis points more
than the three-month London interbank offered rate and $600
million of 1.5 percent debt due March 2018 at a spread of 82
basis points more than similar-maturity Treasuries.

Supervalu Swaps

Capital One’s $1.3 billion of 6.75 percent notes due
September 2017 traded at 121.1 cents on the dollar to yield 1.83
percent on March 13, according to Trace, the bond-price
reporting system of the Financial Industry Regulatory Authority.

The risk premium on the Markit CDX North American High
Yield Index rose 4.9 basis points to 402.8 basis points,
Bloomberg prices show.

The cost to protect the debt of Supervalu Inc. (SVU), the third-
largest U.S. grocery chain, fell as an investor group said a
tender offer for as much as 30 percent of the company’s shares
at $4 wouldn’t be extended beyond its expiration time.

About 7.9 percent of Supervalu’s outstanding shares were
tendered as of 5 p.m. yesterday in New York, according to a
statement from Symphony Investors LLC, an investor group led by
Cerberus Capital Management LP. The results are mostly
“positive because it shows the shareholders think it’s worth
more than $4,” Damian Witkowski, an analyst with Gabelli & Co.,
said in a telephone interview. Shares of Supervalu fell 3.9
percent to $4.22 in New York.

Liquidity Stress

Moody’s Investors Service’s Liquidity-Stress Index, which
typically rises when corporations’ ability to manage cash needs
deteriorates, increased to 3.5 percent in the first half of
March from a record low last month, analysts led by John Puchalla wrote in a report yesterday.

Liquidity shouldn’t be a problem for speculative-grade
borrowers amid good refinancing conditions, the rating company
said in the release. The index suggests that the default rate
among junk-rated companies will end the year at 2.5 percent.